16 So, in Summary As domestic and Canadian production continue to increase, imports to the US via the USGC will continue to decrease. Currently, exporting domestic crude oil is prohibited, other than for a special situation in Alaska. Therefore one might expect US crude prices to be advantaged to domestic refiners Crude quality to the USGC refiners will likely evolve But, domestic demand for products is declining US has trended from a net importer to a net exported of products 16

17 Agenda A little closer to home - What Eagle Ford shale oil means to a heavy crude refiner in Corpus Christi. 17

25 Recent Announcement Flint Hills Resources West Refinery in Corpus Christi is getting $250 million in upgrades. The improvements will allow the company to process more Eagle Ford crude and reduce emissions. The upgrades wouldn t add capacity, but would allow the company to process more South Texas crude. Flint Hills operates two Corpus Christi refineries. The West Refinery that will be upgraded refines 230,000 barrels of oil per day and the East Refinery refines 70,000 barrels per day. Currently, only 50% of the crude processed in the West Refinery is sourced from the Eagle Ford, but additional processing facilities will allow Flint Hills to maximize the use of local supply. The expansion will not be noticeable to the untrained eye and will add 1,000 jobs at the peak of construction 25

26 Impact of Lighter Crude to a Heavy Crude Refiner Replace any light crude that is currently imported Relatively modest amounts 10,000 to 20,000 BPD Run volumes of Eagle Ford in addition to displacing imports Will likely hit physical constraints that will impact overall rate Based on relative crude prices and economics Flexible and short term Target a blend 21 to 23 API Light crude could enable a heavy refiner to bring in super heavy crudes (13-16 API) and then blend with light, local crude to produce a blends suitable for the refinery. Modify existing assets or add additional investment to handle the lighter crude oil Need a longer term perspective on volume and relative price due to time needed to make the investments and earn a payout. 26

27 Factors Impacting Value of Light Crude Oil Aren t lighter (higher API) crude oils always worth more to a refiner? To a point yes Resids (1000 F) are usually the lowest valued fraction. Past that point, the higher API crudes will decrease in value Why? Once the resid yield is essentially nil, the crude value will be impacted by the relative percentages of what is left. Generally jet and diesel (350 F to 700 F) are the most valuable World-wide, diesel is the preferred fuel over gasoline The Atlantic basin is short diesel and long gasoline Typically gas oil (700 F to 1000 F) is the next most valuable FCC or Hydrocracker feed Dense, so more pounds per barrel when cracked, will yield more than 1 bbl for each bbl of feed. 27

28 Factors Impacting Value of Light Crude Oil Next most valuable is Naphtha (170 F to 350 F) Gasoline precursor Typically have some shrinkage when processed Demand for hydrocarbon flat to down efficiency, biofuels Of much lower value is the LPG (less than 170 F) Pentanes can likely be blended into gasoline Butanes are balanced to long for most refiners As gasoline RVP regulations trend downwards, butane is forced out. Alternative may be as Steam Cracker feed competing against ethane lower value than gasoline. Propane yield is typically small Recovered and sold prices between natural gas and crude oil As crude API goes above 40, the LPG content increases significantly 28

31 Quality impact on Reliability Maintaining high reliability is key to a successful refinery Avoids abnormal operating conditions Margins only count if you re producing An important driver to refinery reliability is feedstock quality Eliminate surprises and sudden shifts in crude API Eliminate non-standard streams that may find their way into a crude stream or truck station Due to growth rate and large number of producers, the Eagle Ford crude quality is variable. Will a standard blend emerge? Will several standard blends emerge? The more consistent and predictable the quality, the greater value to a refiner. 31

32 Summary Growth in Eagle Ford production presents a great opportunity to area refiners. For a heavy crude refiner, the Eagle Ford crude is significantly different than their historical crude diet. Economics (price of crude relative to other crudes) will dictate their volumes and strategy. Logistics from the wellhead to the refinery are limiting and complex now, but will likely evolve to pipelines. Consistent and predictable crude quality is important to refineries. 32

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